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How do you reckon our political system functions? Maybe similar to this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills pass into law. Legislation is maintained by the courts. End of story. However, that used to be how it used to work. No longer.

The Advent of Offshore Courts

Nowadays, international firms, along with the wealthy individuals who own them, can sue governments for the policies they pass, at secret arbitration panels made up of corporate lawyers. These proceedings take place away from public scrutiny. In contrast to domestic courts, these bodies grant no avenue for appeal or judicial review. The general public are unable to file a case to them, and neither can our government, including enterprises headquartered in this country. The door is open exclusively to entities registered abroad.

Should an arbitration panel determines that a government measure might diminish the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, even billions.

These sums are based not on real financial harm but money the panel members decide the company might otherwise have made. The state might be compelled to drop the legislation. It will be hesitant to introducing similar legislation in that area, worried about facing litigation.

A Process Running Rampant

Record numbers of disputes are being initiated, as companies learn from each other, and investment funds finance suits in return for a cut of the takings. The outcome? National sovereignty and democracy are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the rulings made by elected bodies is that this provision has been inserted – absent public approval, and typically amid conditions of total confidentiality – inside international trade agreements.

A Real-World Example: The UK Coalmine

A year ago, a conservation group won a great victory at the senior court. The presiding officer found that plans to dig the first deep coalmine in the UK for 30 years, in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no consequence on national carbon targets. The Labour government then withdrew the permission the previous administration had issued. Today, this success faces being overturned by an offshore tribunal reporting to no one but the companies bringing the case.

Last August, a company whose beneficial owners are located in the offshore financial centre initiated proceedings versus the UK government. The previous week a arbitration panel in the United States was convened to consider the case.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to go ahead. We have no idea how much this could amount to. Who is representing it against the state? An elected representative, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The government makes a decision, the high court supports it, then a foreign company challenges it through an secretive arbitration panel, and a member of our parliament represents its behalf.

An Oligarch's Case

Concurrently that the court on the mining lawsuit was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. Details are nothing of the case so far, but it is highly possible that he’ll use the ISDS mechanism to contest the penalties the UK levied against him after the Russian aggression. He has already filed a claim against another European state on these grounds, seeking $16bn: an amount representing half state's annual revenue. Included in the counsel representing him there? the wife of a former prime minister, married to the ex-UK leader.

International law scholars contend that the EU’s hesitation in utilising seized Russian assets as security for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This extraordinary, unaccountable authority over democratic administrations might be preventing the finance Ukraine critically depends on.

Empty Promises and Mounting Threats

The public was told that such things wouldn’t happen. Years ago, a senior politician, promoting the most significant and hazardous of all investment pacts, stated: “The UK has signed trade agreement upon trade deal and there has never been a issue in the past.” A consultant on this issue accused activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations should be concerned by such legal actions. Predictions that “when companies begin to understand the authority bestowed upon them, they will shift their focus from the weak nations to the wealthy nations” were greeted by scepticism.

That threat has come to pass. In the current period, oil and gas and resource corporations have initiated a unprecedented number of suits against nations rich and poor, opposing – as in the case of the Whitehaven project – official measures to prevent climate breakdown. Corporations have to date won vast sums through ISDS, of which energy giants have been awarded eighty-four billion dollars. That represents the combined GDP